Russian stocks and bonds plummeted on Monday and the central bank hiked interest rates, burning its way through as much as $12 billion of its reserves to prop up the rouble as markets took fright at the esca¬lating tension with neighbouring Ukraine.
Investors were ditching all Rus¬sian assets alike – the rouble, stocks and bonds. The market capitalisa¬tion of the Russian rouble-denom¬inated MICEX stock index fell some $60 billion since Friday, more than the $51 billion Russia spent on the Winter Olympics in Sochi last month.
The Ukrainian hryvnia has firmed since curbs were imposed on deposit withdrawals last week, but Ukrainian eurobonds fell sharply.
Russia’s central bank unexpect¬edly raised its key lending rate – the one-week repurchasing agreement – to 7 percent from 5.5 percent, in an attempt to stem capital flight.
The central bank did not men¬tion Ukraine in its statement, but said the decision to raise rates was aimed at preventing “risks to infla¬tion and financial stability associ¬ated with the recently increased level of volatility in the financial markets”.
The central bank said separately it had changed its rules for the rouble’s managed float by raising the amount needed to shift the cur-rency’s trading corridor by nearly fivefold to $1.5 billion, saying again it was a move “to prevent risks to financial stability by limiting ex¬change rate fluctuations”.
ING Bank estimated that the central bank spent $10.5-$12 bil¬lion, or 2 percent, of its gold and foreign exchange reserves keeping the rouble from spiralling down too fast.
“It goes without saying that the extent to which (central bank moves are) successful will depend largely on political rather than economic developments,” Neil Shearing, chief emerging markets economist at Capital Economics, said.
The rouble closed 2 percent down at 36.50 against the dollar and 1.6 percent lower at 50.38 against the euro , its at all-time lows.
The MICEX index of Russian shares tumbled 10.8 percent to close at 1,288.8 points and the dollar-denominated RTS collapsed 12 percent to 1,115.1 points. Reuters
